Tuesday, July 11, 2006

Air Dogfight Over Malaysia (1)

"Wolde you bothe eate your cake, and haue your cake?"

- English saying, 1546

The government’s national policy on a Malaysian two-airline system is bound to be shipwrecked, or to use more relevant terminology, for a dramatic aircrash, unless it stops pussyfooting around with its fickle-minded indecisions. In allowing MAS to have its cake and eat it as well, it has handled the relationship between MAS and AirAsia, tenuous in the best of times, very badly.

First, maybe we need to touch on the MAS handing over of unprofitable routes to AirAsia, with government blessings. But now MAS has changed its mind on a few routes because it has deemed those as profitable after all.

The routes are the Johor Baru-Kuching, Kuala Lumpur-Tawau and Kuala Lumpur-Sandakan sectors, which our dear government has OK-ed MAS to fly as well after already consigning them to AirAsia. After MAS had hived them off to AirAsia, it did a 180 degrees high speed turn, when it realised the sectors have a high volume of business travellers.

Its belakang pusing (about turn) manoeuvre tells you something about its management, doesn’t it?

However, to be fair to MAS, it had as a national airlines played a social role for donkey years in providing essential air services on routes that weren’t and (some) still aren't profitable. In other words, it had been cross-subsidizing those unprofitable routes with profits (if any) earned from revenue producing flights. Another form of its social obligations has been the discounted price for senior citizens.

Malaysia is not unlike large country with relatively small population like Canada or Australia, where large tracts of its territory are largely undeveloped but having pockets of its citizens living in those remote locations. Land communication links are virtually non-existent and riverine transport may be too impractical or also non-existent.

The only form of convenient travel and transportation of necessary goods would be by air. Though the market is not large enough for inexpensive flights based on economy of scale, the flights to the more remote or offside locations are still vital because of political and social reasons.

Thus for years, MAS had carried the political-social-financial burden assigned to it by the government. 'Twas the same reason that Singapore had, in the infant years of its independence, broken off with Malaysia on their joint airline system, Malaysia-Singapore Airlines or MSA.

Singapore obviously wasn't going to subsidize Malaysia’s unprofitable but essential domestic routes with earnings from MSA international flights. Why should it when the responsibility of maintaining Malaysia’s internal transport infrastructure belonged to a foreign government? See where Singapore's business decision has taken it to.

So it has been a good move for MAS to hive off those unprofitable routes to concentrate on the commercially viable ones, as an international airline ought to do, like SIA. But obviously it can’t make up its mind, now wanting some domestic routes back. Regrettably the government has supported its backflip. As the stepson, AirAsia has to give way to MAS ‘gimme back’.

I would have like to see MAS concentrate on international flights plus only those domestic sectors between State capitals. For example, in the 'gimme back' sectors of Johor Baru-Kuching, Kuala Lumpur-Tawau and Kuala Lumpur-Sandakan, only the Johor Baru-Kuching route would qualify.

The rest should be left with AirAsia. Any connecting flights with its international flights outside of the links between State capitals should be a cooperative business alliance between the two Malaysian airlines, with AirAsia providing the domestic feeder services. But as we will see in my next posting, MAS has a more sinister aim, to shoot down AirAsia in the coming dogfight.

I must admit I was surprised when Air Asia agreed to accept those unprofitable domestic routes, claiming it could make them profitable. Short of charging the true price, how could it?

The reality is that states like Sarawak, Sabah and even Kelantan with poor land or water transport infrastructure require subsidised air services. But airlines like MAS or AirAsia shouldn’t be burdened with a social responsibility component in their operations. The Federal government must work with their State counterparts (even of the political opposition) to provide the subsidized air services in the form of rural air transportation.

Next … the coming dogfight over airfares

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